Liar, Liar

Was this a liar loan? -- Picture courtesy of Wikipedia

by blogSpotter
Back in January, our economy was already getting hit with the subprime crisis in the housing industry. My stocks and mutual funds took a big hit -- I reluctantly did a rebalance of my investment accounts as a result. I moved quite a bit into money market and "safe" funds, figuring I was OK. Then this summer, gasoline prices doubled in the space of a month. (Pundits now say that oil might even be $200 a barrel by year's end). My so-called safe apportioning was no longer safe -- I had to do another serious rebalance in June.

A note to those who say, "Don't run, the market will return". I didn't rebalance in 1999 during the dotcom meltdown, and lost $58K in one quarter; I'm not waiting for the market to come out of intensive care this time around. I'd rather earn 1.4% reliably than lose 25% erratically. My aim has never been to "get rich" but rather have stable and yes, predictable investment income. I have extreme ire towards greedy market manipulators who've brought the house down on all of us. If someone were trying to wreck the economy, they could do no better than destroying the housing industry and doubling fuel prices. These particular industry melt-downs have the potential to bring everything down quickly. Airlines are having big cut-backs; GM and Chrysler are said to be flirting with bankruptcy.

Yesterday, NBC's Today Show had a whistle-blower -- a mortgage analyst formerly employed by Countrywide. He says they engaged in issuing "liar loans". These are loans where the applicant is coached on how to inflate his income -- also these loans are not documented; income statements don't have to be verified. There's an uncomfortable tie back to 2001 (pre 9/11) when W. Bush exhorted all Americans to become home owners. Bush has already received so many beatings in this blog; we'll leave it alone for now. It may be that Bush's exhortations have nothing to do with liar loans that banks issued later in his tenure. Giving a little benefit to a lot of doubt ...

Will we recover from all this? We were starting to heal from the housing crisis when we received the gasoline belly punch. The gasoline price can severely impact households that don't have an extra $200 in their monthly budget -- it may even exacerbate the credit crunch problem as more people pile gas purchases onto credit cards. This being an election year, several politicians are advancing ideas -- mealy mouthed though they are. Senator John Cornyn of Texas wants us to drill every reserve (off shore, Alaska, national parks) available and then, oh yeah, do some research on alternative energy. To me, this is a little like continuing a heroin habit while you think about ways of getting off of it. America needs to be rehabilitated now, not later. The outlandish fuel prices will force many Americans to choose the common sense frugality they should've always embraced. And depending on how much further American business buckles under $142/barrel oil, greedy capitalists may have to reconsider exactly what kind of gratification their fat bellies really need. If America doesn't temper its own habits, there's no hope at all; the uptick in small car purchases actually gives us some reason to hope.

© 2008 blogSpotter